Russian President Vladimir Putin has repeatedly admitted that the sanctions imposed by the West have caused significant difficulties | Photo: EFE/EPA/SERGEI GUNEYEV/SPUTNIK/KREML POOL / POOL
Despite Western sanctions against Russia, the ruble posted its biggest appreciation against the dollar this week since 2020. The Russian currency still peaked at 11% against the US currency from January to April. But it is possible that the balance sheet will be favorable for the Russians in the short term.
The matter has caused controversy in European politics. Jordan Bardella, The incumbent leader of France’s conservative Rassemblement National party said economic sanctions were “a big mistake”.
“They are massively enriching Russia, which is profiting from this war, making hyper profits. The embargoes caused fuel prices to explode,” Bardella stressed.
The Russian government has taken steps to defend the ruble
Ironically, the sanctions may have temporarily helped the Russian currency appreciate. Because to protect the ruble, the Kremlin has imposed high interest rates on the central bank, forced exporters to sell foreign currency and demanded that natural gas be sold in rubles.
Showing that the Russian economy is doing well, the Central Bank of Russia announced the second rate cut in less than a month after raising interest rates. In the statement, the bank said that “risks to prices and financial stability have stopped rising and the conditions for a key interest rate cut have been created.” The statement sent to the press goes on to say that “the slowdown in inflation is largely due to the strengthening of the ruble and the fall in consumption.”
Russian President Vladimir Putin has repeatedly acknowledged in official statements that the sanctions imposed by the West are causing considerable difficulties. However, he also dared to say that he took the opportunity to rebuild and diversify the economy. Russia would increase exports to Egypt and India.
With oil, natural gas and coal prices soaring, the Kremlin itself was still making billions in profits from what it was exporting to the European Union in recent months. According to the Research Center for Energy and Clean Air, a think tank in Finland, total Russian export profits in the first two months of the conflict in Ukraine amounted to 63 billion euros. And 71% of that amount came from the European Union: European countries spent almost twice as much in 2022 compared to the same period last year.
Good Russian times should not last
However, the ruble appreciation wave may have numbered its days. Corresponding International Monetary Fund (IMF)“Unprecedented sanctions and uncertainties are expected to severely affect investment and exports, as well as depress imports and private consumption in Russia.”
Furthermore, the IMF report highlights that Europe’s desire to get rid of Russian hydrocarbons by 2027 could eliminate 6070% of current demand for Russian oil and natural gas in the coming years.
Economic indicators also contradict the thesis that Russia could become richer in the long term as a result of the war. Gross domestic product (GDP) is expected to collapse this year, with forecasts ranging from 8% according to the Central Bank of Russia to 10% according to the European Bank for Reconstruction and Development (EBRD). At the same time, inflation is expected to increase by more than 20%.
High interest rates at Russian banks also tend to limit investments by Russian companies. As a result, Putin’s strategies may start to fail and the ruble’s good momentum is unlikely to last long.